President Obama presented his 2013 budget to the nation last
week. It made me feel the same way I feel when my irrigation system starts all
my sprinklers going in the middle of a rain storm. I feel like screaming at the
controller box – IT’S RAINING OUTSIDE. STOP SPRINKLING.
Mr. President, we have a government deficit problem. Stop
spending money like a lottery winner at Walmart. Many of you reading this will
notice that I once again am harping about federal government spending and you
want me to talk about taxes. But as Betty will tell you, I can do only one
thing at a time. Let me just say that I agree that tax revenue enhancement is
important and necessary. I promise to get to that topic another time. So grant
me a reprieve to focus only on spending right now.
Luckily the Office of Management and Budget (http://www.whitehouse.gov/omb/budget/Historicals
) estimates the impacts of Presidential proposals so we have oodles and oodles
of tables at omb.gov that shows how the President thinks his proposal will affect spending between 2013 and 2017. Of course his proposal would have to be
passed by Congress to have an impact but it is instructive to see what’s in
this plan for federal government spending. Surely it is revealing as to what
the President thinks is necessary and good for the country. I read and my son
affirms that like the presidential proposal of this or any other president, this first
version envisions that much will be changed before Congress is finished. In fact, it is possible that nothing gets done in the coming year with
respect to the 2013 budget. Nevertheless it is good to look at what he is
proposing.
The following table comes from Table 1.1 Summary of Receipts, Outlays, and Surpluses or Deficits (from the above link).
I have abstracted just the information about government spending or outlays for
the years indicated below. I added defense spending from Table 3.2 Outlays by Function and Subfunction.
Average Annual Percentage Change in
Federal Government Spending
On-Budget On-Budget Off-Budget
Total Defense (Mostly SSN)
1990 to 2007 1.4 5.0 13.0
2007 to 2011 9.1 7.0 2.5
2011
to 2017 3.1 -2.8 12.1
The story
from the rates of growth is pretty simple. The 1990 to 2007 data are provided
for benchmarks – or to register some degree of normality. On-Budget Government
spending during that 17 year period grew by an average of about 1.4% per year. On-Budget
includes most items in the budget and defense spending but not social security outlays. Notice that the defense spending part of On-Budget grew by 5% per year – faster than overall
On-Budget. Spending Off-Budget was the fastest with an average annual increase
of 13% per year.
The second line of
the table calculates annual average percentage change over a four year period that includes the recession and the following slow growth years. This period mostly coincides
with Obama’s tenure. Notice that SSN spending slows greatly during these years while On-Budget spending rises by
9.1%. On-Budget spending increased from $2.3 trillion in 2007 to about $3.1
trillion in 2011. A more normal increase during that time period would have
found it growing to about $2.43 trillion. Thus we see On-Budget government
spending growing by about $670 billion more than normal.
There was a
recession and because of the recession we found On-Budget government spending
about $670 billion higher than the amount it ordinarily would have increased.
Since the recession is now over it might be reasonable that sometime after 2011 or
sometime in the future, that extra or excess spending could be removed. A normal
spending amount for 2011 should have been $2.43 trillion. So reducing the
actual amount of $3.1 trillion back down toward $2.43 would be reasonable. The
spending was meant to be temporary. Temporary means you add it when necessary
and then remove it when not necessary.
Here is
where the English language really creates problems for us. Getting rid of
spending that is in excess of what would be normal is called a normalization by
some people – a horrendous cut by other people. In my mind, you can’t call it a
cut if it was meant to be tempory and if you are letting the normal progress of
government spending rise. Government spending was $2.3 trillion in 2007 and
normalization would imply spending of about $2.43 trillion in 2012 or
thereafter. That is not a cut – it is an increase -- so long as we let spending rise towards $2.43 trillion.
Okay so some
of you think I am being draconian. But let’s see what the President’s budget
estimates for spending after 2011. Do we see anything bordering on a cut from
the bloated levels of 2011? Absolutely not. The table shows SSN spending going
back to its double-digit increases.
On-Budget spending is estimated to grow by an average annual rate of
3.1% per year from 2011 to 2017. Notice that is not only NOT A CUT but that
growth rate is EVEN HIGHER than what prevailed during the 17 years from 1990 to
2007. In fact the average annual rate after 2011 is more than double the normal
rate of the past. President OBAMA is not suggesting a cut – he is taking a
bloated level of spending of $3.1 trillion and raising it over the next six years
to $3.7 trillion.
This reminds
me of someone gaining 50 unwanted pounds in February deciding to gain only 40
pounds in March. That’s quite a cut, right? Would it be so crazy for this
person to plan to lose 1 pound next month?
While losing more than that would seem more effective clearly no one
would consider gaining 40 pounds a cut.
If any
politicians boldly tries to use this perverse Presidential logic to stop the increase – for
example if anyone dares to cut the increase to only $3.6 trillion by 2017 they will be
pointed out and ridiculed and called mean-spirited souls who care not for those
who receive government spending. But this is crazy politics. Only a King with
No Clothes could get away with calling another $600 billion increase on top of
a temporary and bloated figure a cut in spending.
You might
notice that almost nothing is being cut – except On-Budget Defense which goes
from $705 billion in 2011 to $589 billion in 2017 – a cut of $117 billion. Yes
– there is a real cut in Obama’s budget and it is Defense spending.But alas, this cut is not used to cut or slow spending since it is more than made-up with more ornaments for the Christmas Tree called Non-Defense On-Budget spending.
This amounts
to the lunatics running the institution. Those of you who think I focus too
much on spending and not enough on taxes read on a little farther. If this
budget were passed and if we do want the budget deficit to decline over time,
this proposal requires EVEN MORE tax increases to move in that direction. We already need a large tax revenue infusion
to cover the deficit from the recession years. Obama’s budget asks us to fork
over even more each year through 2017. Clearly he has no plan to cut the
national deficit through spending reductions.
And in this corner we have the Republican candidates arguing about contraception and other social issues while the elephants are stampeding in the streets.
ReplyDeleteAl, I am hoping that sometime this year someone somewhere will start talking about spending and deficits!
ReplyDeleteDear LSD. I wish the R prez candidates would – like Al E. N. describes – stop finger pointing about stuff the govomit has no biz being in . . . but, hey, OB started it ‘cause he wants big, more govomit to get us dependent on more of it. But, hey, I digress . . . this is supposed to be ‘bout OB’s budget . . . or proposed spending spree, eh? Accordingly and true to form (er, I mean spots . . ) he chose not to focus like a laser on jobs and deficit reduction (although the false assumptions and outright lies in his budget and spinmeisters’ tales profess otherwise . . .). It’s the “let’s pull the wool over the sheeps’ eyes” redu. Tell a lie long enough and people (er, I mean, lambs . . . . ) will believe it . . . . also, with a little help from the lame stream media.
ReplyDeleteI’m very distressed to say, but neither the fake in the WH nor the R nominee will take on/press for significant, meaningful, actual spending cuts. Rather they’ll chip away at the edges, only reducing the rate of increase, thus kicking the can down the road, ala Greece/EU. Reason: too bitter a pill for the voting public . . . and certainly anathema to 50% of fed tax files that don’t pay fed income taxes. I’m sure you’ve seen the stats that show even if all wealth – not just income and income taxes – but actual wealth of the top 100 were confiscated for debt reduction it wouldn’t even come close to reducing debt more that .000111%. So much for seeking revenue solutions to reduce debt . . . we got a spend’n problem, not revenue.
Only when China says “no mas” to our bonds unless the rates pass 11.4395845% will we get any action on true deficit reduction. At that point, servicing the debt will surpass Soc. Sec., Medicare, and ferrin aid to Egypt. Now, that’ll get Congress’ attention . . . oooops, wishful thinking.
Naw, just pop anudder cold one . . . or JD . . . and watch that ol televised debt-meter keep on keeping on. So much for not wanting “the kids” to have to pay down the debt. Sorry, gotta go . . . it’s almost time for Loony Tunes.
Charles -- I agree -- it is tough to see anyone turning this thing around before a crisis arises!
ReplyDeleteDear LSD. We already be in up to our necks in a crisis.
ReplyDeleteYou ain't seen nothing yet.
ReplyDeleteYup, we have seen nothing yet. The R's are busy promoting distractions because they have no solution and the D's are busy telling everyone that good times are here again.
ReplyDeleteNow we also have to have somebody write a political dictionary so we can tell the difference in a budget cut or a just spend less than lest year as a % but raise the base....and a few other spin items offered by both parties. It is hard enough to interpolate if one has a good education think about the majority of the under 35 group..whew!! if it is not in text language they will not get it at ll. So they do not even know they will be paying the big tax bill later.
Now...Dr. D explain this:
OB comes to office and creates a create job stimulus which morphs into a save job stimulus because it did not create jobs. Little of the funds ever made it to the private sector unless they were used to reward people who donated the big bucks. The source of the $ was the printing press and the return on the expenditure of the dollars was impossible to calculate at four decimal points because the interest rate has been held down close to ZERO. What happens when that much money is dumped into the economy but never reaches the private economy?
Thanks James. Good question. A friend of mine once described this situation as a wet firecracker. You light it and then you aren't sure if and when it will explode. Throughout this mess the key variable has been confidence -- confidence of consumers, banks, companies, etc. The recent improvements in the economy and the stock market as well as marginal improvements in some aspects of housing and finance suggest to me that confidence is returning and this year could be be much stronger than anyone expects. That is, the firecracker is finally going to go off. Of course, with stupid budgets there is a good risk that government will end up pouring another glass of water on the firecracker (and confidence) and it will not go off...I hope that helps.
ReplyDelete